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Boehner: A $1.6 Billion Tax Break for Trial Lawyers

The House yesterday passed H.R. 6049, the Energy and Job Creation Act of 2008, also known as the "tax extenders" legislation, which includes lots of good stuff: An extension of the R&D tax credit (expired since Jan. 1), an extension of deferral of U.S. tax on active business global financing income, and extensions of tax incentives for energy efficiency and renewable energy. The vote was 263-160, and House Majority Leader Steny Hoyer highlighed the energy provisions in a news release.

House Republican Leader John Boehner saw another provision as noteworthy, focusing on it in a statement headlined, "Democrats Stiff Working Families, Give Tax Breaks to Trial Lawyer Allies ." Excerpt:

This bill tells us a lot about the Democrats' priorities. Rather than working to bring down gas prices or protect taxpayers, Democrats have hatched a scheme that fails to protect middle-class families from having to unnecessarily pay the AMT and gives their trial lawyer benefactors a $1.6 billion payoff. This giveaway comes just two days after former powerhouse trial lawyer and Democratic donor William Lerach reported to federal prison for his role in a multi-million dollar conspiracy scheme involving illegal kickbacks to plaintiffs - a scheme involving illegal activity that Mr. Lerach said is an 'industry practice' in the trial lawyer business. Democrats have refused to hold even a hearing to examine this scandal and its implications for our struggling economy, and now they're coddling their trial lawyer allies again by showering them in $1.6 billion in taxpayer-funded perks.

The language is from Sec. 311, Uniform Treatment of Attorney-Advanced Expenses and Court Costs in Contingency Fee Cases. The provisions allow trial attorneys to deduct advanced litigation fees regardless of whether their contingency fee was structured as a "net" or a "gross" fee arrangement. The law does not now allow lawyers to take a current tax deduction under a net fee arrangement. (We've put the relevant bill language in the extended entry.)

And the White House has threatened to veto the bill, although its Statement of Administration Policy released Wednesday does not mention the trial lawyer provision.

Subtitle B--Business Related Provisions


(a) In General- Section 162 is amended by redesignating subsection (q) as subsection (r) and by inserting after subsection (p) the following new subsection:

`(q) Attorney-Advanced Expenses and Court Costs in Contingency Fee Cases- In the case of any expense or court cost which is paid or incurred in the course of the trade or business of practicing law and the repayment of which is contingent on a recovery by judgment or settlement in the action to which such expense or cost relates, the deduction under subsection (a) shall be determined as if such expense or cost was not subject to repayment.'.

(b) Effective Date- The amendment made by this section shall apply to expenses and costs paid or incurred in taxable years beginning after the date of the enactment of this Act.

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Rafael Mangual
Project Manager,
Legal Policy

Manhattan Institute


Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.